Chapter 1 - Introduction


1.1 In recent years, in addition to wider international efforts aimed at improving financial regulation and transparency, governments worldwide have demonstrated increasing determination to ensure that all taxpayers, from individuals to large multinationals, pay their fair share of tax. This is reflected in international initiatives such as the United States’ Foreign Account Tax Compliance Act (or US FATCA) initiative, and the G20/OECD Base Erosion and Profit Shifting (or BEPS) initiative. Common themes amongst such initiatives are improving transparency frameworks, the imposition of new reporting obligations, and expectations of greater levels of cooperation between jurisdictions through exchange of information.

1.2 One particular issue in the international spotlight has been tax evasion arising from wealth held by individuals and entities in “offshore” financial accounts that goes unreported for tax purposes in the home jurisdiction. A global solution to this problem is needed to prevent these funds fleeing to non-complying jurisdictions. In response, G20 Leaders launched an initiative in September 2013 for the development and swift implementation of a global standard for the Automatic Exchange of Financial Account Information in Tax Matters (in short, Automatic Exchange of Information, or AEOI).

1.3 As a set of rules it is referred to as the AEOI standard. The AEOI Standard is based on the US FATCA Standard, although there are significant differences between AEOI and US FATCA. The AEOI Standard comprises four distinct elements. These are:

  • The Common Standard on Reporting, Due Diligence and Exchange of Information on Financial Account Information (in short, the Common Reporting Standard or CRS). See Part IIA of the AEOI Publication.
  • Model Competent Authority Agreements (or CAAs). See Part IIB of the AEOI Publication. Three separate models are provided, a multilateral model, a bilateral model, and a non-reciprocal model (for jurisdictions that will only provide, but have no interest in receiving, information, such as those with no tax system).
  • Commentaries to the CRS and CAA. See Part III of the AEOI Publication.
  • Technical solutions to be used for exchanging the information, including minimum standards in relation to the encryption and transmission of information, data confidentiality, data safeguards. Some of these technical solutions have been finalised, but others are still being developed.

1.4 Jurisdictions that implement the AEOI Standard (participating jurisdictions) receive information on the financial assets and income from those financial assets held by their tax residents in offshore accounts. The tax authorities of those jurisdictions can then use that information to verify that those residents have correctly reported their financial assets and income for tax purposes. The G20 views implementation as important for all jurisdictions. However, their key targets for early implementation are developed countries and those jurisdictions that have or operate as an international finance centre. These jurisdictions are where offshore accounts will most likely be held.

1.5 The G20 called on the OECD to provide the necessary technical expertise for developing the AEOI Standard. This was finalised and published in 2014. Its published form (the AEOI Publication) can be accessed at To ensure consistent global implementation, the G20 called on the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) with establishing monitoring and peer review processes.

1.6 To date, efforts to secure compliance by target jurisdictions have primarily been through dialogue and a voluntary commitment process. However, as for compliance with other international standards such as anti-money laundering and countering terrorist financing, it is important that a global approach is adopted. If any target jurisdiction is allowed to lag behind in implementation, the risk is that the tax evasion problem will simply relocate to that jurisdiction from other, complying jurisdictions. Accordingly, the G20 has imposed implementation deadlines on all target jurisdictions, to ensure that all move forward with implementation on a similar timeline.

1.7 To date, all G20 member countries, all OECD member countries, and all but three of the jurisdictions that have or operate as an international finance centre, have already entered into implementation commitments.

1.8 New Zealand made its initial commitment to implement AEOI on 7 May 2014 and subsequently decided that the first exchanges of information with other tax authorities would be completed by 30 September 2018, in line with our international commitment. To meet this exchange deadline, AEOI obligations are to apply in New Zealand from 1 July 2017.

1.9 This issues paper specifically concerns, and seeks submissions on, decisions that need to be made regarding New Zealand’s implementation of the Common Reporting Standard, or CRS. The CRS sets out rules to be imposed on financial institutions[1] for:

  • the conduct of due diligence on their non-exempt accounts to identify Reportable Accounts[2] (broadly, covering certain accounts held or controlled[3] by tax residents[4] from reportable jurisdictions[5]) and Undocumented Accounts;[6]
  • the collection of details of financial assets and income in relation to any reportable accounts that are identified; and
  • reporting the information on reportable accounts and undocumented accounts to the tax administration in the jurisdiction in which the financial institution is located (that is, for New Zealand financial institutions, to Inland Revenue). This information about Reportable accounts will then be exchanged with the relevant Reportable jurisdiction.[7]

1.10 Apart from the Commentaries to the CRS, the other elements of the AEOI Standard are concerned solely with exchange of information between jurisdictions, and are generally outside the scope of this issues paper.

1.11 The benefit to New Zealand from implementing AEOI lies in the information that it will receive from other participating jurisdictions about the financial assets and income of New Zealand residents in those jurisdictions. This information will be used to detect current tax evasion and deter future tax evasion. Perceptions of a fairer tax system can also generally be expected to enhance voluntary compliance domestically. However, AEOI implementation will impose compliance costs on financial institutions. Possible transitional measures and mitigation of compliance costs are therefore a critical part of our thinking, and we invite any suggestions in this regard.

The Common Reporting Standard

1.12 The CRS contains the following categories of rules that must be implemented domestically:

  • Due diligence: Rules for the conduct of due diligence by financial institutions on their accounts to identify reportable accounts and undocumented accounts.
  • Collection of information: Rules for the collection of details of financial assets and income in relation to any reportable accounts that are identified.
  • Reporting of information: Rules for reporting information on reportable accounts and undocumented accounts to the tax administration in the jurisdiction in which the financial institution is located (that is, for New Zealand financial institutions, to Inland Revenue).

1.13 The CRS also includes important ancillary requirements. In particular:

  • it imposes an obligation on financial institutions to look through certain passive entities[8] and report on controlling persons[9] who are from reportable jurisdictions;[10] and
  • it requires each implementing jurisdiction to introduce a domestic compliance regime.[11]

The legal basis for exchange

1.14 Because of historical international and legal principles that otherwise impose barriers to countries assisting each other in enforcing their tax laws, forms of tax cooperation between jurisdictions such as exchange of information generally are typically conducted under tax treaties. Although bilateral tax treaties such as double tax agreements (or DTAs) and tax information exchange agreements (or TIEAs) can be used for this purpose, the joint OECD/Council of Europe Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the Multilateral Convention) has emerged internationally as the preeminent international instrument for tax cooperation generally.[12] The Multilateral Convention has now been signed by over 100 jurisdictions. New Zealand signed the Multilateral Convention on 26 October 2012.

1.15 It is anticipated that the majority of AEOI exchanges will take place under Article 6 of the Multilateral Convention. (Note that AEOI exchanges under the Multilateral Convention will generally apply solely between two of the parties. That is, on a bilateral basis.) Article 6 refers to automatic exchange “in accordance with procedures which shall be determined by mutual agreement”. To give effect to this requirement for mutually agreed procedures, a Multilateral Competent Authority Agreement (or MCAA) has been developed internationally,[13] based on the multilateral CAA provided in the AEOI Publication.

1.16 AEOI exchanges can potentially also be made under bilateral DTAs. The majority of New Zealand’s DTA partners are also signatories to the Multilateral Convention, so for New Zealand the question of whether AEOI exchanges should be made under any of our DTAs currently only applies in the case of 15 of our DTAs with jurisdictions that are not parties to the Multilateral Convention.[14] However, resolving this question is not currently seen as a priority, especially as some of the 15 jurisdictions concerned may yet sign the Multilateral Convention.

1.17 New Zealand only has three bilateral TIEAs in force with jurisdictions that have not signed the Multilateral Convention. At present, TIEAs only provide for exchange of information on request, and automatic exchanges such as AEOI are not contemplated. However, in recognition of the fact that TIEAs do not authorise AEOI, the OECD has developed a mechanism for amending TIEAs to allow them to be extended to automatic exchanges. Again, New Zealand does not see amending our TIEAs as a current priority, as all of our TIEA partners may yet sign the Multilateral Convention.

Data confidentiality and safeguards

1.18 AEOI will involve the reporting and exchange of sensitive personal and financial information. Understandably, taxpayers and other stakeholders are likely to be concerned about any potential risks to privacy from the reporting and exchange of their financial information, and in particular, that the information reported to Inland Revenue and exchanged with other jurisdictions is subject to high standards of confidentiality and data protection. Addressing these concerns is essential if support for the initiative is to be maintained.

1.19 Domestically, that will require a clear legislative framework to govern the collection and exchange of the relevant personal and financial information, including the limits on the permissible use of that information. Officials consider that the secrecy rules under which Inland Revenue currently operates (primarily set out at section 81 of the Tax Administration Act 1994) are adequate for this purpose.

1.20 Internationally, that will require a high degree of confidence in the data protection arrangements in place in other participating jurisdictions. To that end, the Global Forum will conduct peer reviews on data security and confidentiality arrangements (in addition to the general peer reviews referred to above). The results of these confidentiality reviews will be available to implementing jurisdictions to help inform their decisions as to which countries they can safely exchange information with. New Zealand can use these mechanisms to identify and (if necessary) restrict exchanges with jurisdictions that do not comply with the data security and confidentiality requirements.

OECD documentation

1.21 In addition to the AEOI Publication, other important documentation relating to CRS implementation includes the following:

  • The OECD’s Implementation Handbook published on 7 August 2015 (see
  • The Multilateral Convention (see
  • The MCAA (see

1.22 It is important that this issues paper is read in conjunction with these documents, as they contain technical detail which cannot all be replicated in this paper. A Glossary is included at the end of this issues paper for general information. The CRS due diligence procedures referred to in this issues paper are also elaborated upon in the Appendix. Any inconsistencies between this issues paper on the one hand, and the CRS, its Commentaries, the Implementation Handbook, or any other OECD documentation on the other hand, are inadvertent. OECD documentation should be treated as authoritative.

Consultation questions

1.23 To ensure global consistency, the CRS rules will be applied by participating jurisdictions as designed by the OECD. (Indeed, the Global Forum will be conducting in-depth monitoring and peer reviews to ensure that jurisdictions implement the CRS correctly.) However the CRS and its Commentaries provide flexibility and require implementation decisions on certain points. This issues paper calls out these points in Chapter 5, and seeks your views. We are particularly interested in understanding how (or if) exercise of any of the available optionality would assist in reducing compliance costs.

1.24 Given that compliance costs of implementing by 1 July 2017 are likely to be high, officials have considered the possibility of transitional arrangements for financial institutions (within the confines of what is allowable under the CRS). Such matters are dealt with in Chapters 2 through 4.

1.25 Submissions on any other implementation issue are also welcome.

How to make a submission

1.26 Officials invite submissions on the suggested changes and points raised in this issues paper.

Submissions should be sent to [email protected] with “Common Reporting Standard” in the subject line.

Submissions can also be sent to:

Common Reporting Standard
C/- Deputy Commissioner, Policy and Strategy
Inland Revenue Department
PO Box 2198
Wellington 6140

The closing date for submissions is 31 March 2016.

1.27 Submissions should include a brief summary of major points and recommendations. They should also indicate whether it would be acceptable for Inland Revenue and Treasury officials to contact those making the submission to discuss the points raised, if required.

1.28 Submissions may be the subject of a request under the Official Information Act 1982, which may result in their release. The withholding of particular submissions, or parts thereof, on the grounds of privacy, or commercial sensitivity, or for any other reason, will be determined in accordance with that Act. Those making a submission who consider that there is any part of it that should properly be withheld under the Act should clearly indicate this.


1 See Chapter 2 of this issues paper, which sets out those financial institutions that will have due diligence and reporting obligations.

2 See Chapter 2 of this issues paper.

3 This applies to accounts held by passive NFEs. See the Glossary at the end of this issues paper.

4 As explained in detail in the Appendix, an account holder is sometimes treated as being resident for tax purposes in a jurisdiction based on indicia (of such residence) that is not “cured”. Furthermore, for the purposes of CRS due diligence, an Entity such as a partnership, limited liability partnership or similar legal arrangement that has no residence for tax purposes shall be treated as resident in the jurisdiction in which its place of effective management is situated.

5 See the Glossary at the end of this issues paper.

6 See the Glossary at the end of this issues paper.

7 This is subject to the potential application of the “wider” approach, which is canvassed in this issues paper.

8 These are defined in the CRS as “Passive NFEs”. See the Glossary at the end of this issues paper.

9 See the Glossary at the end of this issues paper.

10 See the Glossary at the end of this issues paper.

11 This represents a key difference from FATCA. A withholding tax regime applies in the United States to promote FATCA compliance. No similar international measure exists for AEOI.

12 See

13 See

14 We also have a 16th DTA, with the Hong Kong Special Administrative Region of the People’s Republic of China, but this does not provide for automatic exchange.